Preliminary cattle buying interest could start to surface this morning. But we suspect that traders will remain more "watchers" than "doers," and of course a big thing worth watching will be internet business as generated by the FCE. Both sides will be looking for clues regarding cash market potential. Such results may help shape asking prices. Our guess is that country asking prices will start out around $142-144 in the South and $125-plus in the North. Active trade volume will probably be delayed until Thursday or Friday. Live and feeder futures should open solidly higher thanks to follow-through buying and gas premiums.
Look for the cash hog market to open with bids steady to $1 higher. At this time, private analysts believe Saturday's kill should total close to 120,000 head. Lean futures seem set to open moderately higher thanks to bull spreading, signs of cash strength, and expectations of improving realities of supply. And demand.
| BULL SIDE | BEAR SIDE | ||
| 1) | For the second-consecutive day, beef cut-outs exploded sharply higher with box demand once again described as "moderate to good." | 1) | Even after the surge seen on Tuesday, spot June is still $9-$11 under last week's cash trade. Such an extraordinarily muscle-bound basis should increasingly erode feedlot leverage, especially once seller sense that first banana peel under their feet. |
| 2) | The persistent discounts of summer live futures hold some attraction for the large specs as they recall that the December, February, and April contracts all rallied sharply from deep discounts into expiration. | 2) | Despite new highs scored in recent weeks, actively traded June live cattle futures typically trades lower from early spring into the spot month. |
| 3) | The cash hog trade surged higher on Tuesday with the national negotiated dressed base marked as much as $2.22 on decent volume. Seasonal fundamentals are starting to shift in a positive way. | 3) | Though bulls are betting on the sustained strength of pork exports, April saw a definite slowdown in weekly exports to parts of Asia. |
| 4) | The pork carcass value moved moderately higher yesterday, supported by better demands for loins, ribs, and hams. | 4) | Although weekly hog kills are now set to decline over the next several months in relative size, harvest levels are not expected to fall below 2016's levels for quite some time, if at all, on a weekly basis. |
CATTLE: (Penton Business Media) -- Retailers have been seeing beef stampede through their stores as lower wholesale costs are allowing them to promote aggressively.
The effects aren't being felt at the cash register, however. Through the first two months of 2017, beef poundage sold at retail increased by 3% over a year ago, while dollar sales fell 1%, according to IRI/Freshlook data.
The lower prices could be helping attract more customers to the beef case, however, and could present opportunities for retailers to promote more premium and value-added offerings, observers said.
Lower prices can translate into increased sales of expensive cuts.
Mike Zimmerman, senior director of the meat department at Festival Foods, De Pere, Wis., is hoping the increased beef volume has staying power once deflation subsides.
"Our strategy has been to take advantage of the lower pricing to promote more beef in our weekly ads and in-store," he said. "While the net effect is declining sales due to the lower retails, we are working to promote our delicious beef with our guests now to hopefully strengthen our position once the markets correct themselves."
Some retailers report that consumers have become accustomed to beef being more expensive, which may be slowing their transition back to a category they had shunned in recent years.
"Beef is starting to gain traction again after the last three years, but people are still seeing it as a luxury and unaffordable," said Steve Keville, fresh meat director at discount grocery chain Grocery Outlet, based in Berkeley, Calif. "In the last three years it's been in the double digits per pound price range, and now that it's back in single digits again, not everyone is seeing that yet."
Keville said Grocery Outlet, whose stores are operated by individual owners, has had some success promoting steak items in bundles, such as two, 8-ounce New York strip steaks for $5, or on a per-pound basis, such a $4.99 per pound.
He said both types of promotions have performed equally well, but overall steaks have not been strong sellers lately. That may be attributable in part, he said, to the fact that much of the area where Grocery Outlet operates has been suffering through a rainy spring that has prevented consumers from firing up their barbecue grills.
"I think the consumer is still buying hamburger and chicken way faster than they are buying steaks," he said.
Data from IRI/Freshcount shows that retailers were promoting beef heavily in January and February, with feature ads for ground beef up 12.5% over a year ago, and ads for primal cuts — which include chuck, rib, loin, round, flank, short plate, brisket and shank — up 9.9%.
Average weighted prices for ground beef in the ads were down 6.4% from a year ago, while prices for primal cuts were down 5.5%.
Even Whole Foods Market, which is highly selective in its beef assortment and doesn't always see its costs fall with the rest of the market, was able to run beef promotions when its costs did begin to come down late last year during the company's fiscal first quarter.
"We're definitely seeing lower beef costs," said A.C. Gallo, president and COO, Whole Foods, in an earnings conference call with analysts in February. "That has resulted in our lowering some of our beef retails and doing a lot more promotions during the first quarter."
Trying new items Anne-Marie Roerink, principal at 210 Analytics, which conducts the Power of Meat research report for the Food Marketing Institute and the North American Meat Institute, said deflation in the meat case often inspires shoppers to try new items.
"While at first glance year-over-year dollar losses may paint a negative picture, it is important to look at the total landscape," she said. "Despite economic improvement, consumers continue to cook at home and a greater share of these meals includes meat and poultry again."
While 18% of shoppers say they are buying more volume of the same kinds of meats as they were before, 14% said they are more willing to experiment with new meat varieties and try premium offerings, according to Roerink. This gives the industry opportunities in areas such as branding, value-added, grass-fed, organic, antibiotic-free and other attributes, she said.
Beef fills part of Wegmans' organic meat selection.
It's also an opportunity to shift consumers back to more premium cuts.
"Many shoppers took to trading down as one of several measures to stretch the meat dollar during the height of the recession and inflation," Roerink said.
As beef prices have subsided, it has been driving strong volume increases in economical cuts, but also in many of the higher end cuts, such as rib-eye, strip, T-bone and tenderloin steak, she said.
Zimmerman of Festival Foods agreed that lower prices allow the retailer to promote more of its premium beef offerings.
"One advantage [of deflation] would be to provide our guests with items they are wanting most," he said. "This allows us to provide exception value and quality products at a great price."
Research firm CattleFax, Centennial, Colo., expects retail beef prices to continue to decline during the next two years.
"Short term, the wholesale market has seen prices fall more rapidly in the last year as total protein supplies pressured market values lower," said Lance Zimmerman, manager of research, analysis and data at CattleFax. "Retailers have been more aggressive in their price markdowns than restaurants, and that is showing up in stronger year-over-year sales."
Roerink said now is good time for retailers to build a loyal following for their meat department that can look beyond price.
"It is important to realize that one size fits no one," she said. "We have to curate the meat offering, tailored to the shopper audience and their needs, and reflecting the kinds of trends and innovations that matter to them.
"In this new world, customer service, if not personalized service, will take on a central role, along with staff and shopper education. When retailers become a meat destination, known for their service, quality, variety, etc., price matters just a little less."
HOGS: (agweb.com) -- Talks of pulling out of the North American Free Trade Agreement (NAFTA) is sending ripples through the pork industry, which has seen impressive demand so far this year.
The U.S. pork industry is still in expansion mode, partially enticed by new processing plants coming online.
Brad Blonde, a farmer from Litchfield, Mich., is in the middle of a major expansion project, laying the foundation for a new opportunity in farming. In January, Blonde bought his father out and decided he wouldn't own pigs after 20 years.
Selling the 2,000 head of hogs wasn't a decision that happened overnight. Instead, they decided to invest in infrastructure. Before, Blonde had space for 3,500 hogs, but soon they'll have 12,000 head space.
This big investment will allow him to finish out 32,000 head of pigs a year for once producer. "We're actually a contract grower," said Blonde. "We own the buildings, someone else puts the pigs in, we take care of them [for the supplier], and we get paid on a per-head pace."
Blonde's driving factor is a new processing plant that will be 15 miles from his farm in Coldwater, Mich. The plant is set to be up and running by Sept. 5, a plant Clemens Food Group's CEO Doug Clemens says is one of a kind.
"[The facility] is over 650,000 square feet of plant, and this plant was designed to be the most efficient, producing the highest quality pork we can find on the market today," said Clemens.
Clemens says with a plant of this size, processing capacity will grow over time.
"It will be ramped up slowly over time and we expect by Feb. 2018 to be at full capacity," he said.
With required permits in hand, Clemens says they'll process 10,000 head a day by February. The facility is built to handle a double shift, meaning as many as 22,000 head could go through the doors every day within the next three to five years.
A producer vision brought Clemens Food Group together to make the plant a reality, according to Clemens.
Technology was another driving factor, wanting to make the plant as fully-automated as possible. A similar plant in size, according to Clemens, would require 1,000 employees. With labor a potential challenge, Clemens says technology is reducing that number to more than 800.
"We spent a lot of time researching some of the opportunities we had to not only make it efficient, but to actually incorporate as many robotics as we could into this plant and also to make it very food safety friendly," said Clemens.
Clemens says it's the first time in the company's 122-year-old history is using this technology, which is mostly from Europe. While the tech is used inside the plant, it's also helping wean any biosecurity concerns.
"We will be requiring any trailer that leaves here will be washed and disinfected before it leaves the site," said Clemens.
Animal welfare is a key concern to Clemens Food Group as well. Holding pens for close to 5,000 live hogs to destress for at least two hours, a design inspired by Dr. Temple Grandin.
"45 degree angles were completely eliminated from this design for freer animal flow, and in turn, higher meat quality," said Clemens.
While this site is set to open in September, a plant in Sioux City, Ia. could be online as early as August.
"Neither one of those probably will be up to their full capacity of about 10,000 head per day by the end of the year, but they are sure going to help out a lot," said Steve Meyer, vice president of EMI Analytics.
Meyer says that's helping solve last year's problems with processing capacity.
"We were very tight last fall," he said. "We were right at or exceeded slaughter capacity in about 9 weeks during that fall."
That pressured pork, pushing prices lower in 2016, but not enough capacity could soon be too much.
"We're talking 9 to 10 percent increase in capacity over a 3-year period and that's a rapid growth rate," said Meyer.
Then there's the question of demand.
"We will eat all that we produce—the question is at what price will we get it done," said Meyer.
He says while seasonal demand could push pork prices higher during the second and third quarter of the year, the outlook isn't as bright in quarter four.
For Blonde, this means he no longer has to ride the waves of commodity markets, an opportunity he thinks will help bring home the bacon.
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